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- An expert on millennials says the Great Recession split the generation into two distinct groups.
- Older millennials, who bore the brunt of the financial crisis, dealt with a tough job market and wage stagnation, making it more difficult for them to save.
- Younger millennials, who experienced the recovery period, entered a better job market and became risk-averse by watching the recession unfold.
- While older millennials are still recovering from the recession and younger millennials have more time to plan financially, both bear the weight of student-loan debt.
Jason Dorsey, a consultant, researcher of millennials, and president of the Center for Generational Kinetics, told Business Insider that the best way to look at millennials is by life stage and the events that shaped them, particularly the Great Recession.
Older millennials, defined by CGK as those over 30, took the greatest hit from the recession, making it harder for them to accumulate wealth. Younger millennials, defined by CGK as those under 30, entered the job market during the recovery period – and by watching the financial crisis unfold and not experiencing it directly, they learned what to do and what not to do, financially speaking.
The Great Recession left older millennials playing catch-up to the point where they may not retire
Dorsey called the Great Recession an “extremely formidable and difficult event” for the oldest millennials.
“This led to a very tough job market, wage stagnation for those that had jobs, student-loan debt that was increasingly hard to pay, and rising costs of living around the country,” Dorsey said. “The oldest millennials delayed many of the traditional markers of adulthood, such as marriage, kids, and buying homes, as they went through the eye of the Great Recession and the long and uneven recovery afterward.”
Millennial homeownership was at a record low in 2017, partly because of lifestyle changes like a delay in marriage and having children, Business Insider’s Akin Oyedele reported. Lack of financial security is one of the main reasons many millennials never tied the knot, Pew found.
Because of the economic environment created by the Great Recession and its aftermath, they often weren’t able to save or accumulate the amount of wealth they hoped or expected to – especially if they didn’t move to markets where job prospects were better or wages were enough to allow for savings, Dorsey said.
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Millennials born in the 1980s are at the greatest risk of becoming a “lost generation” for wealth accumulation, according to a 2018 report by the Federal Reserve Bank of St. Louis. As of 2016, people born in this decade had wealth levels 34% below where they would most likely have been if the financial crisis hadn’t occurred, the report found. They’re the slowest cohort to recover from the Great Recession.
Now that they’ve been in the workforce for 15 to 20 years, they’re finally at the point where they can save for retirement and buy homes in markets where housing is financially attainable, Dorsey said.
“Older millennials are often realizing they’re going to have to play catch-up with their finances if they want to ever be able to retire, but some of them have already decided that they likely will not ever be able to afford to retire,” he added.
Inflation doesn’t help. As the value of currency decreases over time, millennials will need to save over $1 million for their retirement to live comfortably, according to Daniel Schutte, a certified financial planner.
The Great Recession has made younger millennials more cautious and risk-averse
Largely missing out on the brunt of the Great Recession, younger millennials “got the benefit of the recovery as a tailwind as they entered adulthood,” Dorsey said. While it still wasn’t necessarily easy for them, it was often easier from an employment perspective – critical when you’re in your 20s and starting your career, he added.
“They also got the benefit of learning from older millennials without having to go through some of the economic pain they experienced and are still recovering from,” Dorsey said.
This has made them more aware of the risk of a bad economy and being more practical when it comes to money, from saving for emergencies to contributing to a retirement account, Dorsey said.
“They are increasingly risk-averse with their money and seeking to get more value from the items or experiences they buy,” he said.
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The investment-banking company UBS found in 2014 that millennials were the most financially conservative generation since the Great Depression. And citing a 2015 Capital One study, Rebecca Lake of SmartAsset reported that 93% of millennials were wary of investing.
However, the younger set of millennials is still bearing the weight of student-loan debt, according to Dorsey. The national total student debt was nearly $1.5 trillion last year, according to Student Loan Hero.
They’re also facing a high cost of living, Dorsey said. While millennials have benefited from a 67% rise in wages since 1970, according to research by Student Loan Hero, this increase hasn’t kept up with inflating living costs – rent, home prices, and college tuition have all increased faster than incomes in the US, the organization found.
But these millennials have “the benefit of being younger and having more runway ahead to adapt and adjust their financial decisions than older millennials,” Dorsey said.